If Pot Is Legal, Why Aren't California Dealers Happy?

In 1996, California became the first state to legalize marijuana for medical purposes. In 2010, California could become the first state to legalize pot for recreational purposes.

An initiative on the November ballot would allow people 21 and older to buy, grow, possess, and transport marijuana "for personal use". It would be legal to possess up to an ounce, or grow pot in a 25-square-foot plot on one's property. Larger growers and sellers would be licensed, regulated, and taxed. (Read the full text here.)

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Marijuana plant

"Strangely enough, there isn't a lot of excitement about the initiative," says Eugene Denson, a veteran attorney in the heart of the so-called "Emerald Triangle" in Northern California, where rural economies depend on pot revenues. Denson, who specializes in defending people charged with marijuana crimes, says, "No one's running up saying, 'Oh my God, we may be legal!'"

Proponents of the initiative claim illegal marijuana is a $15 billion a year business in California, and taxing those sales could raise "billions" for the state. That's assuming prices stay where they are, and even illegal prices have been falling.

"We're in the middle of a marijuana gold rush," says Denson. "People come from all over the world to grow marijuana in California," creating a glut of supply that has caused prices to tumble from around $3,000 a pound two years ago to $1,500 now. That may be one reason so many growers, and the communities which depend on their largesse, are hesitant to embrace the idea of legalization.

Value Proposition

"If the value of marijuana drops below a certain level, the state will not only fail to realize its projected income from sales tax, it will be saddled with the burden of collapsing rural economies," says musician Anna Hamilton. Hamilton organized a community meeting in the Southern Humboldt County town of Redway last month, bringing together businesspeople, politicians, growers, and others, to discuss the impact of legalization. The meeting attracted more than a hundred people and was broadcast on local radio station KMUD.

"If it becomes legal, how is this area going to be economically viable?" asked one man who did not give his name. With legalization, Hamilton says, businesses will close and non-profits will lose many of the funds they receive from growers. "The golden goose will be dead," she warned, "served up on some corporation's table, perhaps."

The purpose of the meeting was to try to get ahead of legalization, to come up with ideas to keep the economy thriving if it's forced from the shadows into the full light of taxation. "I don't have my head in the sand," says Kathleen Bryson, a candidate running for Humboldt County District Attorney. "Humboldt should be leading the discussion, and we should be setting the price."

There were suggestions to set up Napa-style tasting rooms for marijuana in the area, promote eco-tourism, make the region a leader in marijuana research, and, most of all, brand their pot (one person suggested the name Bud-wiser). "It would take a hundred million dollars to create a marketing campaign to create the value added just for the world 'Humboldt' as it relates to this product," said attorney David Cobb.

Some fear that local growers will be run out of business by corporations, like Phillip Morris , but one local told me "that's a red herring." Why would big tobacco want to upset the federal government by investing in one state? "As long as it's federally illegal, I don't think Phillip Morris would get involved," says attorney Eugene Denson. "But how long would it be federally illegal if California legalizes it?"

Denson thinks marijuana will eventually be legalized, but not this year. When it does happen, he says the biggest winners will be the attorneys. "It's going to be a boom for lawyers," as local law enforcement goes after people carrying more than an ounce or growing in an area larger than 25 square feet.

But what about the price? Medical marijuanahas not caused the price to collapse significantly over the last 14 years. Denson says that's because dispensary owners decided not to price below street value to prevent black marketers from buying medical pot and reselling it at a profit.

He predicts, however, that if the November initiative passes, prices could collapse more than 90 percent, which would be a blow to the Emerald Triangle.

"I don't think there's anything in Southern Humboldt marijuana to differentiate it from Santa Cruz marijuana or San Diego marijuana...It's hard to be worth much more than tomatoes if everyone is allowed to grow it."